HIGHLIGHTS

Shifting sands: North American mining companies must address surging demand for frac sand

North American mining companies face intense pressure to meet shale operators’ growing appetite for frac sand. They must take steps now to confirm their businesses are up to the challenge.

The rise of shale oil and gas well development in North America is fueling enormous appetite for frac sand, a key product used in the hydraulic fracturing process to produce oil and gas from underground rock lacking the porous features for these fluids to easily flow to a well. A single shale well can require more than 2,000 tons of sand in its lifetime.

According to the U.S. Geological Survey, 62 percent of US silica production in 2013 was used primarily as hydraulic frac sand, compared to just 25 percent in 2011. Looking ahead, analysts are predicting the North American market for frac sand will see a 300 percent increase in demand by 2016.

While this dramatic increase in demand sounds like a boon for North American miners, it comes with some significant challenges related to transportation, environmental concerns, talent, building capacity and managing rising demand versus resource repletion, among others.

For now, the most pressing challenges for miners will be the ability to meet rising demand for frac sand, while solving the logistical problem of transporting product to end customers—in greater quantities, faster and more efficiently. To address these challenges, we believe North American miners should consider two imperatives: confirm security of supply by working more closely with regulators and other stakeholders and optimize logistics to match customer demands for frac sand.

Collaborate with regulators and other stakeholders to confirm security of supply

A recent United Nations Environment Programme (UNEP) report revealed that sand is being extracted at a rate far greater than its reserve growth. Because regulators may become more reluctant to permit new mine development, there’s a risk that frac-sand operations could become unsustainable.

Particularly now, with some projects facing rising community dissatisfaction, miners must take steps to verify security of supply by becoming “partners of choice” for regulators, communities and other stakeholders. Only then will they secure a license to operate for the long term.

Miners need to manage the rising concerns of stakeholders across health and safety, environment and other social issues by developing holistic strategies that position them as trusted partners. Priorities include forging and strengthening relationships with regulators, investing in skills transfer to local communities, boosting local employment opportunities, and investing in local infrastructure. Targeted investments such as public awareness campaigns geared to mitigate health, safety and environmental concerns are also needed.

Optimize the logistics network

Transport costs from supplier to end users account for over 65 percent of the total cost of frac sand. Miners are already under pressure to quickly and efficiently deliver frac sand to well developers in often remote locations across the United States. As demand increases, the scale of this challenge will only intensify.

Miners’ ability to develop and maintain an effective road and rail logistics system is critical. This is where digital technologies could deliver valuable benefits. Take just one example: by harvesting and analyzing the increasingly detailed information available from connected devices installed on truck fleets, mining companies could be better equipped to assess risks/bottlenecks, reduce costly truck waiting times, and optimize usage of available railcar capacity.

The demand for frac sand is growing. It’s also constantly changing. To capitalize on this wave of opportunity, mining companies look to act now to position their operations for a sustainable future.

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